Cost Reduction Guide Issue 5 Logistics


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Cost Reduction Guide Issue 5 Logistics

  1. 1. Is your business costing you?find extra profit A guide to reducing logistics costs Issue 5: Logistics Expense Reduction Analysts
  2. 2. Introduction Logistics is a critical function in any business. It directly impacts business development, customer service, sales and market share - above all, a company’s reputation. It is not just about getting goods from A to B. It includes tips and advice on the Speed to market, ever-increasing customer following areas: delivery demands, fuel costs, inventory held in the supply chain, heightened cost • International Freight – how to best competition, product customisation, manage your air, rail and ocean freight overseas manufacturing, fluctuating operators exchange rates are all critical considerations for users of logistics services as they impact • Parcel Distribution – how to best align on business performance and ultimately with your distribution partner profitability. • Warehousing and Order Fulfilment – how This guide – the fifth in our series looking at to best select your partner and ensure different areas of cost reduction - aims to value for money provide a range of practical advice from experts in the field to help ensure your • Fleet Costs – how to reduce your road business manages its logistics costs transport costs effectively and efficiently.02 Introduction
  3. 3. International FreightOcean FreightWith many well-known brands now supplied from the Far Eastand India for sale in the UK high streets, ocean freight has seen amassive increase in demand. Consequently, these market forceshave resulted in a doubling of shipping costs during 2009.None the less, expert Kevin Fryer says there Tips to control costs:is evidence that companies are benefittingfrom monitoring rates and building 1 Ensure you have the best relationshiprelationships within the market, resulting possible with your ocean freightin suppliers remaining market competitive carrier/agent.relative to volumes of business placed.Rates appear to have stabilised and looking 2 Appoint a carrier/agent with its ownforward, should remain at present levels representation in each country of origin.until at least the third quarter of this year. 3 Challenge rates and surcharges regularly, and ensure your carrier/agent provides you with rates in advance of shipment. 4 Get explanations for each and every surcharge. 5 Do not accept quay rent or demurrage charges without explanation. International Freight 03
  4. 4. International Freight Road Freight During the past two to three years, in and outbound road freight transport has remained very competitive and fairly stable. Carriers have tended to regulate their prices by the use of fuel surcharges and even currency surcharges. Kevin Fryer says companies need to query and understand the basis for fuel surcharge increases and always use well-known and published indices as the basis for comparison. Most reputable carriers will offer such Tips to control costs: indices as the basis for fuel surcharge adjustment and not an excuse to 1 Ensure you have a rate tariff that lists all increase margin. the service options your firm requires. 2 Become familiar with fuel price indices and understand the basis your carrier uses for fuel surcharges. 3 Ensure your carrier is doing everything possible to consolidate loads with the consequent pricing benefits. 4 Maintain a close scrutiny of service levels to ensure you do not pay more for a lesser service.04 International Freight
  5. 5. International FreightAir FreightAir freight is a specialist but thriving market and widely used,even though costs are substantially higher than alternatives.Time is usually the deciding factor that forces companies touse this international freight option.Whilst air freight rates have been relatively Tips to control costs:stable for the last 12 months, Kevin Fryersays 2010 has witnessed a massive hike in 1 Assess forecast usage and negotiate ratesthe airline fuel surcharge. based on forecast levels. 2 Understand all the aspects of costs that are included in air freight rates, and negotiate each aspect with your selected carrier/agent. 3 Grasp all the aspects of costs incurred in the UK. This is often misunderstood and where carriers can take advantage and increase margin easily. International Freight 05
  6. 6. Parcel Distribution Selecting your parcel carrier(s) is no easy task, and poor alignment with your distribution partner(s) can cost you dearly. The current economic climate not only 1 Understand your traffic profile: highlights the need for cost and purchase Carriers vary on their core business management but also the immediate strategy. Some charge per consignment requirement for contingency. What would while others charge per parcel. By happen to your business if its current parcel conducting a full analysis of your carrier went bust? shipments, you can identify the following, which will help you to Expert Charles Reid says it’s essential to best select your carrier: know alternative suppliers. That means o number of parcels per consignments doing your homework. shipped o average weight per consignment o size of packages o geographical spread of deliveries o business-to-consumer or business-to- business deliveries06 Parcel Distribution
  7. 7. Parcel Distribution2 Research the market: 5 Look out for additional charges: Carriers differ from a charged cost base Re-delivery charges, ‘no-one to receive’ and service offerings. Identify the best charges…be aware that additional charges carriers for your business needs. Poor exist. Ask carriers about all of their carrier selection could cost you dearly. charges in advance, and negotiate the price per charge.3 Compare the market: Run a full market exercise and compare 6 Look for customer service technologies: like for like. This will help you select the As a means to improve customer service, right carrier at the right cost. some carriers are investing heavily in software that provides parcel-tracking4 Beware of fuel surcharges: information. ‘Proof of Delivery’ and The price per litre has just reached an all ‘delivery window’ notifications are now a time high of 120p per litre. Some carriers reality. Select a carrier that’s investing in will use this as an opportunity to increase technologies that directly help you. margins. Be prepared and specific when negotiating fuel surcharges. Parcel Distribution 07
  8. 8. Warehousing and Order Fulfilment Entrusting your product to an external provider should not be taken lightly. Its ability to store and care for your product and prepare it for despatch to your customer is not only costly but key to your business success. Select your partner wisely and ensure you are getting value for money, says expert Fergus Smith. 1 Decide what you actually need: 2 What to outsource: Carefully consider your true requirements. Professional logistics providers can offer Yes, you need the basic functionality of a more than storage and order fulfilment. secure, environmentally sound and They can undertake other supply chain professionally run operation. However, functions on your behalf such as order do you need a state of the art building processing and stock replenishment. (will you be taking clients there)? Do you There is a cost to this, but it may be more need instant on-line access to stock cost-effective than your in-house figures or order status? These come with operations and may free you to a cost, which may not be necessary to concentrate on your core business. your business.08 Warehousing and Order Fulfilment
  9. 9. Warehousing and Order Fulfilment3 The tender process: 5 Contractual issues: When going out to tender, ensure the Warehousing has a high fixed cost supplier has as much information as element. Ensure you have not committed possible about your current and future to any long term liabilities should your business. Detailed product, stock and business requirements change. order profiles, down to line item enables Contractual performance targets should potential suppliers to accurately model also be incorporated with the right to and cost the operation with few terminate should they not be met. assumptions.4 Get below the surface: Always visit a prospective supplier. View the operation. Is it clean and tidy with care in housekeeping? Is the building secure and watertight? Do they have long serving staff? Are the employees working in an orderly fashion? Interrogate their processes. Warehousing is a relatively simple but high volume activity. It is very easy for things to get out of control, especially at peak periods, if the necessary processes and controls are not in place and rigorously adhered to. Warehousing and Order Fulfilment 09
  10. 10. Fleet Costs With world oil prices set to rise continually, and the Government’s ongoing determination to levy tax increases on transport fuels, fuel now represents typically 35% of a road transport operator’s costs. However, according to expert Ken Rogers, there are small savings to be gained that when combined together, have significant impact. 1 Review the market: Avoid situations where additional vehicles When buying fuel, look to see what is are unnecessarily required to deliver your happening in the local market. Typically, fuel requirements or where you buy more hauliers ring around their local suppliers to volume to get a lower price only to see this establish the lowest price. However, in eradicated by inefficient transportation. time, the local market will soon establish Know the different size vehicles: 36,000, the levels above wholesale prices where 23,500, 18,500, 17,500 and 10,000 litres. you are buying. This means you will not continue to get the best deals. Ask your 3 Fuel on the go: local peers what they pay. Review extra charges paid when drawing fuel on the road. Savings in fuel costs can 2 Fuel distribution: soon be lost in administrative fees, card When it comes to distributing fuel, the charges, handling fees, etc. biggest cost is UK terminals to end user transport. Therefore, transport providers 4 Professional driver training: (who buy in bulk) need to ensure they Look to engage with professional trainers practice what they preach by ensuring to ensure your drivers follow best practice their suppliers are proactive in suggesting and follow up with ongoing monitoring an optimum load delivery size. programmes.10 Fleet Costs
  11. 11. What else? Expense Reduction Analysts is a global leader in cost and purchase management consultancyThere are other areas in which transport and focuses on reducing non-core operatingproviders can secure cost savings such as costs for private, not-for-profit and publicthe purchase of tyres. Manufacturers are sector organisations.keen to promote the longevity of theirproducts and the positive impact they have Handling an annual supplier spend of millionson fuel consumption. of pounds on behalf of clients in all sectors, the consultants at Expense Reduction Analysts useHold them to these claims and agree, as their significant purchasing influence topart of any tyre contract, mileage achieve optimum value from suppliers, oftenguarantees and a credit if these guarantees successfully retaining incumbents and usingare not met. Also, get the supplier involved expert analysis and market intelligence toas they know the best tyres for different combat ‘contract fatigue’.applications. This will ensure operatorsget the best tyre life. Expense Reduction Analysts has 170 consultants across the UK. It also has a global influence in more than 35 countries specialising in more than 100 non-core business expenditure categories. Other topics covered in our series of cost reduction guides include: Issue 1: Property and Premises Issue 2: Banking and Finance Issue 3: Back Office Supplies Issue 4: Professional Services For more information, contact Expense Reduction Analysts on: 02380 829 737 or visit our website at: 11
  12. 12. find extra profitArgentina Australia Austria Belgium Brazil Canada Chile China Colombia Cyprus DenmarkEcuador Finland France Germany Greece Hungary Ireland Italy Jordan Korea LuxembourgMexico Morocco Netherlands New Zealand Panama Philippines Poland Portugal SpainSweden Switzerland Taiwan United Kingdom United States Uruguay Expense Reduction Analysts